How to Get a Refund on Your GSTBrian Jang ON February 16, 2018
If you operate a Canadian business and are registered for the GST/ HST, did you know that you can get back the GST/ HST paid during a given reporting period? You can, if you claim it through Input Tax Credits (ITCs) on your GST/ HST return.
What are Input Tax Credits?
What are Input Tax Credits, exactly? And what is possible to claim?
As a GST/ HST registrant, it may be possible to recover the GST/ HST paid on expenses related to your business activities, provided these purchases and expenses were for consumption, use, or supply in your business, and they must also be reasonable in quality, cost and nature in relation to your type of business.
When you complete your GST/ HST return, you must declare the GST/ HST collected from your customers, minus your ITCs in order to determine your net GST/ HST tax. If the result is negative, you will receive a GST/ HST refund.
What Can be Claimed?
These are some of the more common expenses for which you may be able to claim ITCs:
- Costs related to the start-up of your business
- Expenses related to the business use of your home
- Accounting fees, legal fees, and other professional fees
- Maintenance and repairs
- Fuel costs
- Office expenses
- Telephone and utilities
- Delivery and freight charges
As is the case with anything that you wish to claim, ensure that you are keeping all necessary receipts as proof of your expenditures.
What Cannot be Claimed?
Items that cannot be claimed include the following:
- Certain capital property
- Membership fees or dues for any club whose purpose is to provide recreation, dining, or sporting facilities (including fitness clubs, golf clubs, hunting and fishing clubs) unless the membership is acquired with the intent of reselling in the course of your business.
- Property or services bought or imported for your personal consumption, use or enjoyment
How Long Do I Have to Claim ITCs?
You should be claiming your Input Tax Credits in the same reporting period in which you made the purchases, however if you forgot to file an ITC or otherwise missed them, you may claim them as part of a later reporting period.
If your business revenues exceeded six million dollars in each of the previous two fiscal years, then the ITC claim must be made within two years following the reporting period in which they should have originally been claimed. If your revenues fall below this limit, you will have four years following the end of the reporting period in which they should have been claimed.
The Quick Method of Accounting for GST/ HST
If your business does not qualify for the GST/ HST refund (because the GST/ HST you collect exceeds the amount you pay for supplies), you may choose to use the Quick Method of Accounting for GST/ HST.
This method was introduced as a means for small businesses to save on paperwork and accounting. If you use this method, you cannot claim ITCs for your operating expenses. You may, however, be able to claim ITCs for certain purchases such as the purchase of land or purchases in which you can claim a capital cost allowance for income tax purposes (such as vehicles, computers and other large equipment).
In essence, the Quick Method allows for the payment of a reduced portion of the GST/ HST you collect, based upon a specific formula and paying the difference between what you collect and what you pay. For businesses with few taxable expenses, this method allows you to save money.
- You must have been in business for 365 days prior to the start of the reporting period
- Your annual revenue, including GST/ HST must not exceed $400,000 for the first or last four of five fiscal quarters
- Your business must not provide legal bookkeeping, financial planning, accounting, consulting, or tax preparation services.
Note that even though you will not be stating the actual GST/ HST collected or paid on your return when you use the Quick Method, you are still required to retain records of this information for six years after the year in question.